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HQ 115864

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January 21, 2003

VES-3-17 RR:IT:EC 115864 RSD

CATEGORY: CARRIER

Water H. Lion, Esq.
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016

RE: Coastwise Trade; Sixth Proviso, Empty Cargo Containers; Vessel Sharing Agreement; 46 U.S.C. App. 883

Dear Mr. Lion:

This is in response to your letter dated November 11, 2002, requesting that we reconsider Headquarters Ruling Letter 115734 dated September 23, 2002. Headquarters Ruling Letter 115734 was addressed to Captain Anil Dhawan of the American Transportation Group LLC and concerned the coastwise movement of empty containers. You indicate that you represent a consortium of vessel operating companies that have entered into a Vessel Sharing Agreement (VSA), one of which was also represented by the American Transportation Group LLC. You have submitted copies of the East Coast United States/East Coast of South America Vessel Sharing Agreement, East Coast United States/East Coast South America Implementing Agreement, and the Operating Manual to Vessel Sharing Agreements. These documents were not included in the submission that was presented for Headquarters Ruling Letter 115734. In light of these additional submissions, you request that our office reconsider our decision in Headquarters Ruling Letter 115734 to determine whether the U.S. coastwise movement of empty containers on non-coastwise qualified vessels pursuant to the Sixth Proviso of the Jones Act, 46 U.S.C. App. § 883 would be permissible.

FACTS:

As was explained in Headquarters Rulings 115734, five foreign-flag shipping lines, consisting of Maersk Sealand Group, PONL Group, CSAV Group, Aliancea Navegacao e Logistica Ltda. (“Alianca”), and Hamburg-Sud Group have formed an alliance called the East Coast of South America Alliance. The purpose of this alliance is to provide for a vessel sharing arrangement among the parties to enable them to improve service to customers within the trade. The terms of the alliance were set forth in a VSA that was filed with the Federal Maritime Commission. Under the VSA, the parties agreed to provide service and to use their vessels in a manner described in the appendices to the VSA.

The VSA covers the operation of vessels and the carriage of cargo via direct service or transshipment between ports on the East Coast of the United States and points in the United States served via such ports, on the one hand, and ports in Argentina, the Bahamas, Brazil, Paraguay, Uruguay, and Venezuela and points in these countries served via such ports.

Under Article 5.2(a) of the East Coast VSA, the parties shall seek to agree upon provision of sufficient capacity to meet the needs of the Trade. Initially, the Parties shall operate twelve vessels, with the vessels deployed in two strings. The parties may periodically review and agree upon the number and capacity of the vessels employed, itineraries and sailing schedules, and the round-trip voyage duration with the aim of providing a competitive and cost efficient service. Strings may not be altered except with the unanimous consent of the parties, but such consent shall not be unreasonably withheld. Article 5.2(c) indicates that the parties, including each member of each Party, are authorized to charter vessels to and from each other under such rates, terms and conditions as they shall time to time agree. The rates, terms, and conditions applicable to each of these vessel charters shall be agreed upon by the Parties or members thereof involved.

Article 5.3 in the VSA provides that the parties may allocate space on the vessels utilized by them under the agreement as they may from time to time agree. The parties are authorized to buy and sell space to and from one another on such terms and conditions as they may from time to time agree in order to balance differences between the slot allocation and slots actually provided, to dispose of unused slots and to further agree that if the sub-chartering arrangements is terminated or amended the allocations shall be adjusted to distribute the slots which had been sub-chartered among the parties on a pro rata basis.

Article 5.4 indicates that the parties may discuss and agree upon standards for, and may interchange, purchase, pool, lease, sublease, or otherwise cooperate in connection with containers, chassis and other equipment in the trade as between themselves or individually or jointly to, from or with another person as they may time to time agree.

Article 5.5 provides for the joint negotiation of terminal agreements including authority to jointly enter into terminal facility leases. In connection with their service in the trade, the parties may consult and agree between themselves and with third parties for the use of terminal facilities, may jointly negotiate and enter into leases, subleases or assignments of such facilities and may contract supplies with each other or jointly with third parties in the United States or elsewhere.

The parties may, under Article 5.6, discuss and agree upon administrative matters, working procedures and related issues, including but not limited to, financial administration and procedures for buying and selling slots, and vessel operation fees. The parties may implement the agreement by meetings, writings and other communications between them and may act through a Steering Committee or other administrative staff, or make other arrangements as may be necessary or appropriate to effectuate the purposes and provisions of the agreement. The parties in implementing the agreement may agree on their respective rights, liabilities, and indemnities arising under the agreement, including matters such as failure to perform, force majeure, and insurance. In Article 5.8 the parties are authorized to agree upon their respective rights, liabilities, damages, insurances, and indemnities for activities under the agreement, including, without limitation, matters pertaining to cargo damage, accidents, hazardous cargoes, damage to persons or property, failure to perform, and force majeure.

In addition, the appendices to the Implementing Agreement provide for initially agreed upon sailing schedules and port rotations. Other appendices describe slot cost allocations and purchase provisions, and the agreed terminals to be used. In addition, the operating manual includes agreed upon procedures for slot allocation, scheduling, cargo booking, hazardous materials cargoes, temperature-controlled cargo, out of gauge and special cargoes, and terminal and stevedoring operations.

ISSUE:

Whether under the terms of the VSA entered into by the parties, the parties might at all relevant times be considered to be vessel operators for transporting their owned or leased empty shipping containers for purposes of satisfaction of the Sixth Proviso to the Jones Act.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, section 883 (46 U.S.C. App. 883), commonly called the Jones Act, provides, in part, that no merchandise shall be transported between points in the United States embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in and documented under the laws of the United States and owned by citizens of the United States. Section 883 was amended by the Act of September 21, 1965 (Pub. L. 89-194, 79 Stat. 823), which added the Sixth Proviso, and by the Act of August 11, 1968 (Pub. L. 90-474, 82 Stat. 700), which amended that proviso.

The 1965 Act exempted from the provisions of section 883 the coastwise transportation of empty cargo vans, empty lift vans, and empty shipping tanks in non-coastwise-qualified United States-flag vessels or foreign-flag vessels, on a reciprocal basis, when the vans and tanks are owned or leased by the owner or operator of the transporting vessels and are being transported for use in the carriage of cargo in foreign trade. The 1968 Act added equipment for use with cargo vans, lift vans, and empty shipping tanks, empty barges specifically designed for carriage aboard a vessel, and certain empty instruments of international traffic to the articles included within the Sixth Proviso. These articles and the articles covered by the 1965 Act were required by the 1968 Act to be owned or leased by the owner or operator of the transporting vessel and transported for his use in handling his cargo in foreign trade.

The 1968 Act also added stevedoring equipment and material to the articles included within the Sixth Proviso. To qualify for the exemption from section 883 under the Sixth Proviso, the stevedoring equipment and material must be owned or leased by the owner or operator of the transporting vessel or owned or leased by the stevedoring company contracting for the lading or unlading of the vessel and the stevedoring equipment and material must be transported without charge for use in the handling of cargo in foreign trade.

The language of the proviso regarding containers which requires that they be owned or leased by the owner or operator of the transporting vessel and transported for his use in transporting his cargo in foreign trade, has collided with contemporary business practice in the vessel industry. Newly emergent limited-purpose alliances of vessel owners have blurred the clear boundaries of the proviso in terms of its application. Whereas even arms-length dealings used to be too close for comfort in the industry, an examination of the current landscape reveals numerous betrothals, if not outright marriages, in the form of “Vessel Consortia”, “Vessel Sharing Agreements”, and “Joint Service Agreements.”

In our prior ruling on this matter, Headquarter Ruling Letter 115734, we noted that the document that was presented made references to appendices and a Federal Maritime Commission Agreement, but these documents were not submitted. We felt that the document that was submitted appeared to be a slot allocation agreement because it only related to procedures for slot allocation aboard the covered vessels. Furthermore, it indicated very few areas of shared responsibilities that would show that the parties exercised joint operational control over the covered vessels. Based on our long-standing position that slot or space charter arrangements do not fulfill the minimal statutory ownership or operational control requirements to qualify for an exemption under the Sixth Proviso, we ruled that the submitted agreement did not convey the status of joint vessel operators on the parties. As such, the empty containers in question could not be transported coastwise aboard any of the vessels involved with consequence under the Sixth Proviso to 46 U.S.C. App. 883.

However, in this request for reconsideration of Headquarters Ruling Letter 115734, additional documentation was submitted including the Federal Maritime Commission agreement, the appendices, and the operating manual. The Federal Maritime Commission agreement provides that the parties undertake periodic reviews and agree upon the number and capacity of itineraries and sailing schedules. In addition, the parties may periodically review and agree upon the number and capacity of vessels employed, itineraries and sailing schedules and the round-trip voyage duration with the aim of providing a competitive and cost efficient service. The agreement further provides that strings may not be altered except with the unanimous consent of the parties, but that such consent shall not be unreasonably withheld. These provisions demonstrate that the parties will exercise joint operational control with regard to sailing schedules, voyages and vessel capacity.

Other indications that the parties will exercise joint operational control include that the parties to the Federal Maritime Commission agreement will agree upon standards for sharing in the use of equipment and that there will be joint negotiations of terminal agreements including the authority to jointly enter into terminal facility leases. There are also provisions that indicate that the parties will work together and agree on matters pertaining to cargo damage, accidents, hazardous cargoes, damages to persons, property, failure to perform, and force majeure. There is also a provision for joint administration and implementation of the agreement. In addition, the accompanying operating manual includes specific agreed upon procedures for slot allocation, scheduling, cargo booking, and terminal and stevedoring operations.

We believe that these provisions show that the VSA filed with the Federal Maritime Commission establishes joint administration among the parties in implementing the VSA. Accordingly, we have determined that the VSA and other documents that have been submitted do convey the status of vessel operator upon the individual parties and that, as such, their cargoes may be transported aboard any of the qualified vessels involved without consequence under the Sixth Proviso. The cargoes that this decision applies to are empty shipping containers that are either owned or leased by an agreement member, which containers are being transported for the purpose of handling the member’s cargo in the foreign trade.

HOLDING:

We have determined that the VSA under examination would convey the status of vessel operator on each of the individual signatories and that as such their empty containers may be transported coastwise aboard any of the vessels involved without consequence under the Sixth Proviso to 46 U.S.C App. 883. Accordingly
based on the new documentation that has been submitted, the holding in our prior decision regarding this matter, Headquarters Ruling Letter 115734, is no longer applicable.

Sincerely,

Gina Grier

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